China Record Auto Exports Seen on Entry-Level Demand: Cars
Chinese automakers may post record exports this year, helping offset slowing domestic sales caused by expiring incentives, curbs on congestion and competition from General Motors Co. (GM) and Honda Motor Co.
Sales abroad may reach 800,000 vehicles, a 15 percent increase from the 681,000 sold in 2008 before the global recession, according to the China Association of Automobile Manufacturers. Exports surged 57 percent in the first seven months, compared with a 3.2 percent gain in domestic sales in the world’s largest auto market.
“It isn’t enough to just sell vehicles in China,” Lawrence Ang, executive director of Geely Automobile Holdings Ltd. (175), said in an interview. “The demand for mid- to low-end cars in overseas markets is much bigger than in China.”
Geely, Great Wall Motor Co. and Warren Buffett-backed BYD Co. want to increase exports as more plants open and domestic sales cool from last year’s 32 percent growth rate. Chinese factories could build 40 million vehicles a year by 2015, outstripping demand of about 27 million, said the National Development and Reform Commission, the top planning agency.
“Expanding into overseas markets will help digest capacity and increase avenues to fuel growth,” said Harry Chen, a Shenzhen-based analyst at Guotai Junan Securities Co. “Automakers in China have been quickly building plants and there will be overcapacity over the next three to five years.”
GM, Honda Models
Domestic automakers get 7.3 percent of their vehicle sales overseas, according to J.D. Power & Associates. The government said in 2009 it wanted exports to make up 10 percent of sales by next year.
The top export markets are Brazil, Algeria and Russia, according to the China Chamber of Commerce for Import and Export of Machinery and Electronic Products.
Deliveries in China slowed this year after the government reinstated a sales tax and restricted purchases in some cities, including Beijing. GM and Honda also created cheaper, China-only brands that have lured first-time buyers from Chinese companies.
China auto sales may rise about 5 percent this year, the automakers’ association said in July, revising its previous estimate for growth of 10 percent to 15 percent.
Geely sold 213,381 vehicles in China during the first six months of 2011, 9 percent more than a year earlier. Exports by the affiliate of Volvo Cars surged 93 percent in the first half to 13,385 units, with Russia, Ukraine and Turkey being its biggest markets.
It exported 22,653 cars last year. The automaker aims to have at least half of its sales coming from overseas by 2015, Chief Executive Officer Gui Shengyue said.
Great Wall exported 12,717 pickup trucks and 12,707 sport- utility vehicles in the first half, with Russia, Australia and Chile being its biggest markets, according to the Baoding-based company. Great Wall, the biggest exporter last year, wants to more than double the proportion of overseas sales to 30 percent by 2015 from 14 percent by introducing new models.
“We need to penetrate deeper into markets like Australia, where we have already exported to, and beef up our brand image,” Chairman Wei Jianjun said last month.
The company also plans to complete a Shanghai share sale this month to raise as much as 3.17 billion yuan to support plans to increase production.
Automakers’ export plans are complicated by a rising currency. A stronger yuan cuts the value of repatriated earnings and raises the prices of China-made cars overseas.
The Chinese currency strengthened beyond 6.4 per dollar for the first time in 17 years on Aug. 11 amid speculation the central bank will allow currency gains to curb inflation running at the highest in three years.
The yuan has gained about 6 percent since a two-year dollar peg ended June 19, 2010.
To help mitigate that, Geely and Great Wall want to settle more deals in yuan instead of dollars, according to the companies. Great Wall also is working with banks to lock in exchange rates to minimize fluctuations, Wei said last month.
“If the yuan didn’t appreciate that much, we would have exported much more,” Ang said. “The rising yuan has been the major negative factor undermining our exports.”
U.S., Europe Expansion
To help meet the government’s 10 percent target, carmakers are bringing long-discussed plans to expand in the U.S. and Europe to fruition.
Geely signed an agreement last month with Manganese Bronze Holdings Plc., maker of the London taxi, to sell its vehicles and spare parts in the U.K. Geely in 2006 became the first Chinese carmaker to display vehicles at the Detroit Auto Show.
The company, which owns about 20 percent of Manganese Bronze, delayed a plan to sell its Free Cruiser compact in the U.S. in 2008, saying it needed more time to prepare.
“Entering developed markets is an important step for Geely’s overall development,” Gui said without elaboration.
Great Wall, China’s biggest maker of sport-utility vehicles, introduced a diesel Hover H6 in Italy last month. It plans to sell vehicles in North America by 2015, Vice President Huang Yong said in an interview.
BYD, part-owned by Buffett’s Berkshire Hathaway Inc. (BRK/A), said it will appoint dealers in the U.S. this year for its E6 electric car. It will export the E6 and electric buses to the U.S. and Europe next year, and a right-hand drive E6 will go on sale in Hong Kong in June, Chairman Wang Chuanfu said.
U.S. consumers will be a tougher sell for Chinese carmakers than those in emerging markets, said Kevin Tynan, senior automotive analyst at Bloomberg Industries. About two in three prospective American car buyers won’t consider a Chinese brand, according to a survey of 450 respondents by New York-based GfK Automotive, based on data compiled in the fourth quarter of 2010.
“Chinese automakers simply have not engineered vehicles good enough to gain share in the more automobile-sophisticated markets,” Tynan said. “It will be no small task and probably take many years, perhaps decades.”
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